Say what?! Yeah.. You read that correctly. After making a bullish run for the longest time and even marking new historical highs one after another, gold apparently has just lost its upward momentum. In my last post about it back in June 28 (kindly see it here), gold was pretty much in fashion as it just registered a new historical high of just above $1,250.00 per ounce. But as you can see on today’s weekly chart, its bullish run appears to have come to an end. Notice that it has just broken its long term uptrend line which started way back in October of 2008. At present, gold is sitting just above the $1,150.00 support. A break below this could be disastrous as it could fall all the way down to $1,050.00 or even at $1,000.00. In case gold manages to hang on, it could still aim for its previous high just ab0ve $1,250.00. But with the stochastics still far from being oversold, gold, still has some room south to cover.
As I’ve discussed previously, the increase in the demand for gold in the last several months was primarily due from the risk aversion in the financial market. You see, gold’s intrinsic value makes it one of the best assets out there that can protect the investors’ money from inflation in times of market unrest. And as you know, investors at that time was so tentative given the debt crisis in Europe and the weak showing of the US economy.
The situation and the sentiment now, however, are different. The market has since been rallying, buoyed by strong corporate earnings in the US and robust economic data from both the US and Europe. If the market continues to rally then the demand for the safer investments such as gold would likely diminish. The market, for the last months, may have exaggerated the effects of the credit crisis in Europe to the global economy. But as evidenced in the surprise earnings of the banks in Europe and the US, the effect of the crisis on their business was not that much.
So if gold starts its descent, then the mining industry particularly those companies that are producing gold could also take a hit. Of course, a decline in the price of gold could mean a slide in their revenues. Same thing goes for the commodity dollars like the Aussie, Kiwi, and the Swissy. Since these com-dolls have a positive correlation with gold, a decline in the price of the later could drag their prices as well or at least slow their gains.
Remember, you heard this first at LaidTrades.com.